Paul Krugman Agrees There Is No Fiscal Cliff

Last week I posted two essays (here | here) on why I believe the best way for the GOP to address the wildly misnamed “Fiscal Cliff” is to walk away. The impact of doing so, according to the CBO, will be a temporary downturn in the economy which will make the economy stronger in the long run. Fiscal impact aside it is rarely in your interests to cut a bad deal.

As it turns out, Nobel Prize winning economist and all around Obama fluffer, Paul Krugman agrees.

So what should he do? Just say no, and go over the cliff if necessary.
It’s worth pointing out that the fiscal cliff isn’t really a cliff. It’s not like the debt-ceiling confrontation, where terrible things might well have happened right away if the deadline had been missed. This time, nothing very bad will happen to the economy if agreement isn’t reached until a few weeks or even a few months into 2013. So there’s time to bargain.

More important, however, is the point that a stalemate would hurt Republican backers, corporate donors in particular, every bit as much as it hurt the rest of the country. As the risk of severe economic damage grew, Republicans would face intense pressure to cut a deal after all.

Meanwhile, the president is in a far stronger position than in previous confrontations. I don’t place much stock in talk of “mandates,” but Mr. Obama did win re-election with a populist campaign, so he can plausibly claim that Republicans are defying the will of the American people. And he just won his big election and is, therefore, far better placed than before to weather any political blowback from economic troubles — especially when it would be so obvious that these troubles were being deliberately inflicted by the G.O.P. in a last-ditch attempt to defend the privileges of the 1 percent.

Most of all, standing up to hostage-taking is the right thing to do for the health of America’s political system.

So stand your ground, Mr. President, and don’t give in to threats. No deal is better than a bad deal.

Now much of Krugman’s analysis is wrong. This is not unusual. When Krugman ventures from his academic writings his is both an inveterate liar and relentlessly wrong. But in the main he is right.

The cost of giving Obama both his tax increase on high earners and respite from spending cuts – the near certain outcome of any negotiation — would be near criminal malfeasance on the part of Speaker Boehner and the GOP leadership.

As we did not take the presidency or the Senate we are not in the position as some rather imbecilic commenters on this site have suggested of making demands.

A deal against your own interests is not a deal, it is capitulation.

The situation facing us on January 1 is not a fiscal cliff. It is a deal we negotiated very hard to achieve two years ago and have allowed ourselves to be terrified of accepting. We are on the verge of negotiating away both tax rates and spending. That is a monumentally bad idea and we should simply walk away and prepare for the 2014 budget battle.